The Employer Tax Retention Tax Credit: Four Things Every Business Needs to Know

The Employer Retention Tax Credit (ERTC) was introduced in 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES). ERTC was designed to incentivize employers whose revenues or operations were adversely impacted by the pandemic to retain employees. 

Since its introduction, ERTC has undergone several updates. Overall, it’s easier than ever for employers to claim relief funding. And with up to $26,000 per employee in ERTC available, employers should review their eligibility and act now.

However, with so much information available online, it’s important to separate fact from fiction. This article addresses four things every employer should know about ERTC.

#1: Businesses that received PPP loans can still apply for ERTC

When the ERTC was first introduced, businesses generally could not obtain a credit if they applied for Paycheck Protection Program (PPP) loan forgiveness. As of 2021, it became possible for businesses to apply for both ERTC and PPP. A business can claim ERTC on wages as long as it didn’t use PPP money to pay for those same wages. Businesses can generally use PPP forgiveness funds towards other expenses, giving them more flexibility to report qualifying wages for ERTC. 

Additionally, employee retention tax credits do not have to come from a single period of time. Businesses may select a short time window to apply their PPP funds, leaving them a longer time window to use towards ERTC. 

#2: Businesses can apply for ERTC even if they were not shut down by the government

Many businesses were unable to operate due to government mandates. However, even businesses not explicitly required to shut down can still show an economic impact from COVID-19 and be eligible for ERTC. 

The litmus test instead is whether your business had reduced operations. For example:

• Was your business limited in capacity, e.g. seating, appointments, or sales?
• Did you have to change your hours of operation due to a curfew?
• Was your supply chain cut as a result of supplier shutdowns?

If these things apply, your business was likely still impacted by government orders and may be eligible for ERTC. The key is to keep accurate records and document the specific impacts on your business.

#3: Businesses may qualify ERTC even if they did not experience a drop in revenue

While a decline in revenue is a major factor in ERTC eligibility, operating expenses and losses count, too. First, businesses under a government shutdown order and recovery startup businesses do not have to show a drop in receipts to qualify for ERTC. Beyond that, the ERTC criteria require your business to compare each quarter to the same period in 2019. Your business may be able to show more losses than you think against those pre-pandemic quarters. In 2021, businesses had to show a 20% or greater decline in gross receipts.

#4: ERTC funds will not run out soon

As we approach the middle of 2023, many business owners wonder applying for ERTC is even worth it at this point. They’re concerned funds will run out before they can receive their refund. Thankfully, that won’t happen anytime soon!

ERTC is a tax credit program, not a loanlike PPP. By definition, ERTC cannot run out of money. While the IRS is subject to backlogs in processing Form 941-X, businesses should still apply. With up to $26,000 per employee available, it is worth the wait.

Make Getting Your Employee Retention Tax Credit Easy

 To help review whether your business qualifies and files correctly, Harbor Compliance has teamed with Asure Software. Asure’s ERTC tax filing service calculates your refund and then files the amended tax returns on your behalf. Click here to get help calculating ERTC wages and filing your amended returns.

© 2023 Harbor Compliance. Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency. NOTHING IN THIS COMMUNICATION CONSTITUTES LEGAL OR TAX ADVICE OR A GUARANTY OF ELIGIBILITY OF AN EMPLOYEE RETENTION TAX CREDIT. ELIGIBILITY DETERMINATIONS RELATED TO THE EMPLOYEE TAX RETENTION CREDIT ARE THE RESPONSIBILITY OF THE EMPLOYER.